Barely investment grade Burlington, Vt., has reached a preliminary agreement with Citibank to settle their dispute over Burlington Telecom.
Citibank had been seeking more than $40 million and de-installation of Burlington Telecom's high-speed internet, television and telephone network. The agreement would give Citibank $10.5 million plus a share of future Burlington Telecom revenues.
Moody's Investors Service, which has a Baa3 rating on Burlington's most senior debt, had cited Citibank's suit as a credit negative.
"Since taking office in April 2012, resolving the BT litigation in a manner that accomplished key goals has been my top priority," Burlington Mayor Miro Weinberger said. The agreement, he said, should protect taxpayers from further Burlington Telecom-related losses, while maintaining BT service to residents, improving Burlington's credit rating, and possibly recovering some portion of $16.9 million of general fund money that city leaders had inappropriately used for Burlington Telecom in the latter years of the last decade.
"Today, the big, dark cloud that has hung over the City of Burlington for four years is breaking up, and the sun is beginning to shine through again," said City Council president Joan Shannon.
"The settlement represents an outstanding outcome - the best possible outcome - for taxpayers and for Burlingtonians who believe that BT is an important economic and community development asset for the city," City Councilor Karen Paul said. "Given the risks the city faced in the lawsuit, I could not be more pleased with the terms of the settlement."
The court overseeing the suit has agreed to let the parties takes steps to institute the agreement.
However, to fully go into effect several things must happen. The Burlington City Council has to approve it by Feb. 29. BT must continue payments to Citibank. Burlington will have to file for approval from the Vermont Public Service Commission by March 15 and the commission will have to ultimately approve it. And the city will have to recruit a special situation lender to finance up to $6 million of the settlement.
Citibank had a lease-purchase agreement with Burlington. In a lease-purchase agreement, a financial institution pays to build infrastructure up front. A municipality makes lease payments each year for a number of years until the money is paid off, at which point the municipality has the option to take ownership. However, if the municipality misses a payment the agreement is cancelled and the municipality is required to disassemble the infrastructure and return it to the financial institution.
BT was not bringing in enough money to make the lease payments. Starting in 2010 Burlington stopped making lease payments on the infrastructure.
In May 2013 Citibank's independent counsel in the case, Kevin Fitzgerald, told The Bond Buyer, "We need to stick to our guns about disassembly. To not do so would destroy the fundamentals of the municipal marketplace."
On Feb. 7, Citibank told The Bond Buyer, "We anticipate that our settlement will be completed as the parties have agreed. We are pleased with the results and are happy to put this matter behind us."
As of spring 2013 Burlington had about $106 million in debt outstanding.
